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Year-End 2020 Segment Profitability for Health Insurance Business


June 15, 2021

In September of 2020, Mark Farrah Associates (MFA) reported on the impact COVID-19 had on U.S. health insurance companies after two quarters.  The effect of the virus was felt very late in the first quarter, and the second quarter YTD data offered the most complete look at the pandemic’s financial impact. At that time, medical spending in all segments was down due to disruptions in services caused by the virus, but we wondered if demand for medical services would begin to increase in the second half of the year as the country slowly emerged from pandemic shutdowns.  In this brief, MFA answers that question as we compare year-over-year profitability for the Individual, Employer-Group, Medicare Advantage, and managed Medicaid health insurance segments.  Financial insights were gleaned from aggregated 2019 and 2020 National Association of Insurance Commissioners (NAIC) statutory financial data from MFA’s Health Coverage Portal™

Individual Segment

According to financial statements filed by insurers and estimates by Mark Farrah Associates, enrollment in individual medical plans totaled approximately 14.6 million as of December 2020, as compared to 14 million, a year ago.  Year-over-year enrollment in the Individual segment experienced growth in 2020, marking the first increase since reaching its peak of 17.9 million in 2015.  This growth was fueled, in part, by Americans who lost insurance coverage from their employers, due to lay-offs and business closures, who turned to the individual market to maintain their coverage.  Enrollment peaked during the second quarter of 2020, with 15.4 million members, before shedding 800,000 members by year-end.

After experiencing three consecutive years of overall profitability, as measured by the cumulative underwriting gain for the segment, some industry analysts expected premium increases to be minimal and most likely outpaced by growth in medical spending.  However, expectations quickly changed with the impact felt from COVID-19.  Midway through 2020, premiums earned had decreased 1.9% while health care services (medical expenses) incurred dropped 2.4% from second quarter 2019. On a per member per month (PMPM) basis, which accounts for changes in membership and reporting plans, premiums decreased 2.4%, slightly less than the 2.9% decrease in medical expenses.  By year-end, demand for medical services increased, as states eased shutdown-related restrictions.  Medical spending increased 3.5% for the year and 1.4% on a PMPM basis.


Profitability - Individual Segment 

  2019 2020  Change   2020 RC Adj   Change 

 Health Premiums Earned     

 $74,013,563,578   $81,682,038,661   10.4%  $75,682,038,661  2.3% 
Health Care Services Incurred    $58,843,425,427     $60,874,022,394  3.5%  $60,874,022,394  3.5% 
Medical Expense Ratio 79.5%  74.5%    80.4%   
Member Months  151,533,344  154,568,423  2.0%  154,568,423   
Premiums PMPM $488  $528  8.2%  $490  0.2% 
Medical Expenses PMPM $388  $394  1.4%  $394  1.4% 
Source: Source:  Health Coverage Portal™, Mark Farrah Associates, Annual Exhibit of Premiums, Enrollment and Utilization and Accident & Health Policy Experience Exhibits as reported in the NAIC Financial Statements


Premiums greatly increased in 2020, jumping over 10% on a PMPM basis, however this growth is primarily due to approximately $6 billion of risk corridor payments related to a lawsuit decided by the Supreme Court, in the favor of health plans, in April of 2020.  Removing the impact of this court victory, total premiums earned were approximately $75.7 billion, up 2.3% over 2019.  On a PMPM basis, 2020 premiums were $490, a 0.2% increase over 2019.  The adjusted 2020 medical expense ratio increased to 80.4%.

Employer-Group Segment

Health insurance companies in the Employer-Group risk segment reported 48.5 million members as of December 31, 2020, down 4.5% from the end of 2019.  This is the largest decline since 2014 when many employers moved to self-insured coverage or dropped coverage for their employees due to rising costs related to the Affordable Care Act.   Midway through 2020, profitability had improved due to a small increase in premiums PMPM, as well as a decline in medical expenses.  By year-end, premium PMPM was up 2.9% and medical expenses PMPM increased 0.6%.  With the growth in premiums, more than offsetting the increase in medical expenses, the average medical expense ratio for this segment dropped to 82.8%, from 84.6% in 2019.


Profitability - Group Segment 

  2019 2020  Change 

 Health Premiums Earned     

 $214,602,669,763   $211,269,308,460   -1.6% 
Health Care Services Incurred    $181,564,398,425     $174,868,955,711  -3.7% 
Medical Expense Ratio 84.6%  82.8%   
Member Months  482,037,007  461,347,295  -4.3% 
Premiums PMPM $445  $458  2.9% 
Medical Expenses PMPM $377  $379  0.6% 
Source: Source:  Health Coverage Portal™, Mark Farrah Associates, Annual Exhibit of Premiums, Enrollment and Utilization and Accident & Health Policy Experience Exhibits as reported in the NAIC Financial Statements


Medicare Advantage

Medicare Advantage (MA) market penetration remains strong.  According to the Centers for Medicare & Medicaid Services (CMS), Medicare Advantage enrollment reports, aggregated by MFA in Medicare Business Online™, total MA plan enrollment was approximately 25.5 million at the end of 2020. Health insurers continue to invest in MA growth opportunities for increased enrollment, revenue, and profits as the number of people entering retirement increases each year.


Profitability - Medicare Segment 

  2019 2020  Change 

 Health Premiums Earned     

 $250,960,101,766   $283,334,210,419   12.9% 
Health Care Services Incurred    $214,404,031,361     $234,566,335,889  9.4% 
Medical Expense Ratio 85.4%  82.8%   
Member Months  246,288,505  267,188,353  8.5% 
Premiums PMPM $1,019  $1,060  4.1% 
Medical Expenses PMPM $871  $878  0.8% 
Source: Source:  Health Coverage Portal™, Mark Farrah Associates, Annual Exhibit of Premiums, Enrollment and Utilization and Accident & Health Policy Experience Exhibits as reported in the NAIC Financial Statements


As of June 2020, on a PMPM basis, premiums were $1,106 and medical expenses were $877. At year end, premiums PMPM retreated to $1,060 while medical expenses PMPM remained relatively unchanged at $878.   Compared to 2019, medical expenses grew less than 1%, due in part to seniors delaying elective and other non-critical care.  Premiums PMPM grew by 4.1% driving the medical expense ratio down to 82.8% from 85.4% in 2019.

Managed Medicaid

In November of 2020, CMS reported 78.9 million managed Medicaid members, which is up nearly 7.8 million, or 10.9%, in December of 2019 (at the time of this analysis, CMS had not reported December 2020 Medicaid and CHIP membership).  This increase, resulting from the pandemic’s impact on the economy, is the largest since 2014 and 2015, a period of growth primarily due to Medicaid expansion.

For 2020, premiums earned increased 13.9%, while medical expenses incurred increased 9.2% as compared to 2019.  On a PMPM basis, premiums earned increased 5.8% over 2019, while medical expenses increased 1.4%.  The increase in premiums earned pushed the medical expense ratio down to 85.8%, from 89.4% in 2019.


Profitability - Managed Medicaid Segment 

  2019 2020  Change 

 Health Premiums Earned     

 $207,091,447,203   $235,845,033,650   13.9% 
Health Care Services Incurred    $185,199,427,773     $202,259,318,383  9.2% 
Medical Expense Ratio 89.4%  85.8%   
Member Months  472,740,279  508,991,658  7.7% 
Premiums PMPM $438  $463  5.8% 
Medical Expenses PMPM $392  $397  1.4% 
Source: Source:  Health Coverage Portal™, Mark Farrah Associates, Annual Exhibit of Premiums, Enrollment and Utilization and Accident & Health Policy Experience Exhibits as reported in the NAIC Financial Statements



As of December 2020, all four health care segments experienced increased levels of profitability for health insurers, compared to 2019.  It is important to note that healthcare members engaged in higher levels of care during the second half of 2020.  This relieved some of the pent-up demand related to the impact COVID-19 had on the providers’ ability to administer elective and preventive care, coupled with the public’s concern over exposure to the virus experienced during the first half of the year.  Will the increase in demand for medical services continue into 2021?  While first quarter 2021 reporting indicates that growth in medical expenses is slightly outpacing growth in premiums, the answer to that question will become clearer as the year progresses.  Mark Farrah Associates will continue to analyze and report on important health insurance segment performance and related topics. Stay tuned for future analysis briefs with valuable insights about the health insurance industry.

About Our Analysis

Medical expense ratio is calculated by dividing health care costs/claims incurred by premiums earned.   This ratio indicates the amount of premium dollars spent on medical expenses.  The higher the ratio, the less room there is for the plan to pay for its administrative costs; potentially impacting profitability.  Per member per month (PMPM) calculations are also used to determine the amount of premium dollars earned and the amount of medical costs incurred for each member on a monthly basis.  These calculations are performed by dividing premiums or medical claims incurred by the number of reported member months for the plan.

Data for this analysis was sourced from Mark Farrah Associates’ Health Coverage Portal™, Annual Exhibit of Premiums, Enrollment & Utilization (EPEU) and the Accident & Health Policy Experience Exhibit as reported in the NAIC Financial Statements.  Approximately 90% of the health insurance market is represented within the exhibit.  Some managed Medicaid plans and California managed care plans do not report to the NAIC.  To improve the accuracy of our assessment, premiums earned, and member month data were estimated based upon the NAIC Statement of Revenue and Expenses, due to incomplete or erroneous EPEU reporting by a small number of plans.

About Mark Farrah Associates (MFA)

Mark Farrah Associates (MFA) is a leading data aggregator and publisher providing health plan market data and analysis tools for the healthcare industry.  Our product portfolio includes Health Coverage Portal™, County Health Coverage™, Medicare Business Online™, Medicare Benefits Analyzer™, 5500 Employer Health Plus TM, and Health Plans USA™.  For more information about these products, refer to the informational videos and brochures available under the Our Products section of the website or call 724-338-4100.

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